Member Article

What Separates Successful Entrepreneurs From Those Who Fail

Xero, a global leader in cloud accounting software for small business, today released its Make or Break Report, revealing the common traits and experiences separating successful small businesses from those that fail.The success of small business is vital to the global economy. Yet passion, and even money, often aren’t enough for a company to flourish, as evidenced by the large numbersthat don’t survive. Figures reveal that nearly 60% of UK small businesses close their doors within five years. Xero polled over 2,000 entrepreneurs in the US and UK to uncover the fundamental differences between companies that make it and those that don’t. The findings were surprising.

Entrepreneurs on the path to success are more likely to invest in technology, value time with their families and build excellent relationships with business mentors, according to the findings A prior business failure, may even predict future success. Nearly six out of 10 respondents (58%) cited spending time with family in the evenings as crucial to their effectiveness as a business owner, and more than half (55%) said it’s important to keep their weekends free for loved ones.

“What small businesses learn from early failure can be a positive thing,” says Gary Turner, Managing Director of Xero UK. “Second time round, small business owners learned to keep costs to a minimum, limit overheads like rent and employees, and are more likely to develop robust business plans and take a more considered approach, limiting expansion before hitting profit targets. Businesses come back stronger the second time round.”

Success factors

• Sell services. Survivors appeared to have a better shot at survival if they focused on selling services rather than products. Fifty-nine per cent of businesses selling mostly services survived in comparison to 45% of failed businesses, yet twice as many businesses that focused on selling products failed: 41% compared to only 19% of survivors.
• Understand alternative finance. Whilst access to funding is still the biggest challenge to success for young businesses, most are now aware of new alternative methods of financing. British businesses are more savvy than U.S. businesses when it comes to knowledge about alternative finance options with 77% of British businesses claiming to be aware of crowdfunding for example, compared with 67% of Americans. Despite this only 4% (translating to approximately 208,000 UK businesses[2]) have actually tried crowdfunding.
• New business start-ups are lean. 27% of small businesses invest less than ï¿¡1,000 at start-up with more than half (51%) investing less than ï¿¡5,000.
• Small businesses need technology to grow. Small businesses inject a productivity boost with apps, fintech and mobile tech with 86% of small businesses claiming they use technology to increase their productivity. Almost half (49%) use business apps with almost a third (32%) integrating mobile payment technology into their service offering. More than one in four use business planning tools (26%) and 82% of small business owners using online accounting software agree that it has increased productivity.

Xero’s findings strongly demonstrate a number of common traits demonstrating the mindset and habits of successful small business owners:

• They don’t work around the clock - instead they have a strong belief in the value of personal time and make time for their loved ones and family. While successful owners eschew sacrificing a personal life, for most of them it’s still impossible to disconnect entirely. Just 28% say it’s vital to turn off their phones and laptops after business hours.
• They try, try and try again. A positive mindset and a willingness to fail—successful small business owners are more likely to see failure as a good thing, learn from mistakes and want to try again.
• They don’t pretend to have all the answers - instead they enlist the support of strong, collaborative network: family, advisors and mentors, an accountant or financial advisor. A third of successful entrepreneurs say they have turned to mentors, compared to just 14% of respondents who ran businesses that had to close.
• They have the ability to access and manage finances. Of those owners who cited a business issue as a reason for failure (as opposed to a personal issue), most at 65% blamed it on financial issues (cashflow, visibility, access to capital).
• They invest in technology for increased productivity in finance, along with dedicating funds to marketing and customer service. Nearly six in 10 survivors (58%) use software to manage their finances vs. a marginal 14% of failures, and just shy of a third (31%) allocate resources to improving customer service, versus 20% of those in the failed camp.

When compared to industry averages, US and UK businesses that use Xero are markedly more likely to succeed. In the US, 95% of Xero customers survive their first year vs. 79% for the average. In the UK 97% of Xero customers make it that far compared to an average rate of 91%.

The pattern becomes even more distinct over longer timeframes. At the five-year point, 85% of Xero customers in the US are still up and running, while the industry average is 50%. In the UK the difference is greater still, with 88% of Xero customers operating after five years, compared to an industry average of just 41%.

This was posted in Bdaily's Members' News section by Xero .